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Accounting, Auditing & Accountability Journal
Discharging not-for-profit accountability: UK charities and public discourse

Alpa Dhanani, Ciaran Connolly,
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To cite this document:
Alpa Dhanani, Ciaran Connolly, (2012) "Discharging notforprofit accountability: UK charities and
public discourse", Accounting, Auditing & Accountability Journal, Vol. 25 Issue: 7, pp.1140-1169, doi:
10.1108/09513571211263220
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AAAJ
25,7 Discharging not-for-profit
accountability: UK charities and
public discourse
1140
Alpa Dhanani
Cardiff University, Cardiff, UK, and
Ciaran Connolly
Queens University Belfast, Belfast, UK
Abstract
Purpose This paper aims to examine the accountability practices of large United Kingdom (UK)
charities through public discourse.
Design/methodology/approach Based on the ethical model of stakeholder theory, the paper
develops a framework for classifying not-for-profit (NFP) accountability and analyzes the content of
the annual reports and annual reviews of a sample of large UK charities using this framework.
Findings The results suggest that contrary to the ethical model of stakeholder theory, the sample
charities accountability practices are motivated by a desire to legitimize their activities and present
their organizations activities in a positive light. These results contradict the raison detre of NFP
organizations (NFPOs) and the values that they espouse.
Research limitations/implications Understanding the nature of accountability reporting in
NFPOs has important implications for preparers and policy makers involved in furthering the NFP
agenda. New research needs to examine shifts in accountability practices over time and assess the
impact of the recent self-regulation developed to enhance sector accountability.
Originality/value This paper contributes to the NFP accountability literature by: first, developing
a framework of NFP accountability through public discourse using the ethical model of stakeholder
theory; and second, advancing the understanding of the accountability practices of large UK charities.
Keywords Accountability, Charities, Non-profit organizations, Public discourse, Stakeholder theory,
Disclosure, United Kingdom, Accounting, Annual reports
Paper type Research paper
1. Introduction
The rise in the visibility and influence of the not-for-profit (NFP) sector in recent years,
together with the adverse publicity surrounding a number of high profile scandals of
fund misappropriation and organizational inefficiency has highlighted the need for
NFP accountability. In turn, initiatives such as the Accountability Charter[1] and the
Global Reporting Initiatives (GRI) (2010) non-governmental organizations (NGOs)
reporting guidelines have been developed to promote the NFP accountability agenda.
In academia, however, the construct remains relatively under-explored and
untheorized (Unerman and ODwyer, 2006; Kreander et al., 2009). The purpose of
Accounting, Auditing The authors would like to thank the three anonymous reviewers for their helpful and
& Accountability Journal
Vol. 25 No. 7, 2012 constructive comments. They are also grateful to Professors Mahmoud Ezzamel, Michael Jones,
pp. 1140-1169 Howard Mellett and Steve Walker for their feedback on earlier versions of this paper. Finally
q Emerald Group Publishing Limited
0951-3574
they would like to express their gratitude to the Certified Accountants Educational Trust of the
DOI 10.1108/09513571211263220 Association of Certified Chartered Accountants for their financial support.
this paper is to address this gap in the literature by examining the discharge of Discharging
accountability by NFP organizations (NFPOs). Using stakeholder theory, the paper not-for-profit
develops a framework for NFP accountability through public discourse, and then
employs this framework to analyze the patterns and motivations underlying the accountability
discourse practices of large UK charities, one significant type of NFPOs.
In recent years, while accountability has been a much-debated topic in the
accounting and the wider for-profit, public sector and development literature, the latter 1141
of which focuses on issues relating to developing countries (Gray et al., 2006), the
concept continues to remain an abstract construct that lacks a clear definition (Munro
and Mouritsen, 1996; Ebrahim, 2003a; Geer et al., 2008). Various conceptualizations and
measures of the construct are offered in the literature (Roberts, 1991; Sinclair, 1995),
and the concept has been studied from different perspectives and in different contexts.
For example, previous research has considered accountability in the context of:
principal-agent theory (Laughlin, 1990; Edwards and Hulme, 1996); stakeholder theory
(Gray et al., 1995a; Makela and Nasi, 2010); and legitimacy theory (Deegan, 2002;
Campbell et al., 2006; Tilling and Tilt, 2010). The concept has also been examined in
terms of the role and value of the different mechanisms of accountability (ODwyer,
2005; ODwyer and Unerman, 2007); the play-out of accountability in organizations
(Panozzo, 1996; Ezzamel et al., 2007); and the discharge of accountability through
public discourse, the strand of research to which this study belongs.
Within the public discourse system employed by organizations, the annual report
occupies a prominent place as a textually mediated mass communication medium. As a
statutory document in most Western economies (Gray et al., 2006), it attracts a degree
of authenticity not associated with other such media and has become the principal
means through which management fulfill their reporting responsibilities (Boyne and
Law, 1991; Coy et al., 2001). Presently, the annual report is the communication lens
through which stakeholders can understand and monitor organizations activities,
operations, successes and failures. Consequently, it is increasingly being recognized as
one of the most widely used tools with which organizations can account to their
stakeholders (Davison, 2007; Samkin and Schneider, 2010).
Prior research examining the NFP annual report can be classified into two strands:
studies that have inquired into the value (and limitations) of its information content;
and those that have examined the discharge of accountability through the annual
report. Examples of the former include Tinkelman (1999, 2009), and Hyndman (1990),
Khumawala and Gordon (1997) and Buchheit and Parsons (2007) who, respectively,
examined the role of financial accounting data and qualitative service efforts and
accomplishments type information in influencing giving decisions. Research into the
discharge of NFP accountability through the annual report is in its infancy and
includes Connolly and Hyndman (2004) who examined non-financial performance
reporting by UK charities as a measure of their accountability practices.
This paper, which contributes to the latter strand, adds to the literature in two
important ways. First, using stakeholder theory to contextualize NFP accountability, it
develops a comprehensive framework for accountability through public discourse.
Second, employing this framework, it assesses the patterns and motivations
underlying UK charities accountability practices. An understanding of the nature of
accountability reporting has important implications for preparers, policy-makers,
think tank organizations, and users of accountability information.
AAAJ The remainder of the paper proceeds as follows. The next section reviews two
25,7 models of stakeholder theory to mobilize the notion of NFP accountability and presents
a framework for NFP accountability through discourse. Section three presents the
research intentions and section four provides an overview of the UK charity sector,
within which the study is set. Thereafter the research approach and study results are
presented and discussed. Finally the paper ends with some conclusions and
1142 implications for future practice and research.
2. Theoretical framework
2.1 Not-for-profit accountability
There is little consensus on how to define and classify NFPOs (Kramer, 1998; Davison,
2007). Kramer (1998) explains that the NFP sector constitutes a diverse group of
organizations that range from large, formal, professional organizations with vast budgets
to small, informal, community-based groups operating with little funding. NFPOs also
vary in structure and purpose; UK examples include registered charities, community
groups, social enterprises and mutual organizations. Despite these differences, NFPOs
collectively share a number of similar characteristics namely, being self-governing and
having some degree of voluntarism, and more importantly, being non-profit distributing
and working specifically towards the advancement of society.
Accountability has been variously defined as holding one (an organization or
individual) to account for their actions (Stewart, 1984); giving (voluntarily) an account
of ones actions (Lawry, 1995); and taking responsibility for ones actions (Fry, 1995).
Together with being used to describe such processes (holding to/giving an account),
the term has also been used to capture what it is that organizations should account for.
Boyne et al. (2002), for example, explained that the evaluation of performance forms an
intrinsic element of accountability, while Roberts (1991) added that combined with this
strategic dimension, organizations should account along a moral dimension for their
socially responsible behaviors and activities. Moreover, authors such as Sinclair (1995)
and Stewart (1984) distinguished between different forms and levels of accountability
to demonstrate a hierarchical structure of the concept. Overarching these definitions
and views are different disciplinary bases from which accountability, as mentioned
earlier, has been studied.
This paper relies primarily on stakeholder theory and, its close relation, legitimacy
theory to examine NFP accountability; two theories that have influenced much of the
recent accountability debate in the organizational behavior literature (Deegan, 2002;
Campbell et al., 2006). Stakeholder theory which follows, facilitates a wider, more
inclusive perspective of accountability that recognizes the need to account to and for
multiple constituencies (Ebrahim, 2003b). As such, it enables NFPOs to determine the
content of their social profit, that is, what it is that they strive towards and how it
should be distributed (Bouckaert and Vandenhove, 1998). Moreover, stakeholder
theory has an ethical dimension that befits the social conscience of NFPOs. Over time,
different versions of stakeholder and legitimacy theories have been offered and while
the positive model of stakeholder theory and the organizational model of legitimacy
theory have been widely used in for-profit research (Chen and Roberts, 2010), this
paper adopts the ethical model of stakeholder theory as a basis for NFP accountability.
The remainder of this sub-section presents the two perspectives of stakeholder theory
and contextualizes NFP accountability within the ethical model.
The ethical model of stakeholder theory interprets the function of an organization Discharging
on the basis of underlying moral and philosophical principles (Donaldson and Preston, not-for-profit
1995). The model postulates that organizations have a responsibility to honor all their
stakeholders equitably and ethically, and calls for genuine stakeholder democracy and accountability
participation. Where stakeholder interests conflict, the model adds that managers
should to seek to strike an optimal balance between them to ensure fairness and equity
among the constituents concerned. Within this framework, accountability is seen as an 1143
inherent feature of organizational activities. Grounded in ethical principles,
accountability here is a felt responsibility (Lawry, 1995; Boyne et al., 2002; Najam,
2002; Ebrahim, 2003a), in which organizations want to and choose to genuinely account
to/for their diverse constituents. Moreover, it is seen as taking responsibility for ones
actions and therefore comprises accounting to and for the various stakeholder groups,
that is, taking consideration of their needs, expectations and circumstances (Leat, 1986;
Pratten, 2004). Borne from the ethical principles of organizations, accountability here is
linked to ensuring that public trust is served (Ebrahim, 2003a).
In contrast, the positive model of stakeholder theory resonates more closely with
legitimacy theory (organizational legitimacy)[2]. Concerned with the long-term
survival and success of organizations, the positive model proposes that these
organizations require the support of their constituents, and that to gain this support
and approval, management need to legitimize their activities to these groups (Roberts,
1991; Lindblom, 1994). Management can obtain legitimacy by deploying different
accountability mechanisms with which to demonstrate that the values, beliefs and
successes of the organization are commensurate with stakeholder expectations and
demands (Gray et al., 1995a). These accountability mechanisms operate along a
continuum of situations such that organizations may account in response to a major
crisis that immediately questions their legitimacy, to a series of smaller episodes which
gradually erode trust and confidence (Merkl-Davies and Brennan, 2007; Brnn and
Vidaver-Cohen, 2009; Samkin and Schneider, 2010). Concerned with preserving
organizational interests, the positive model allows or even encourages organizations to
manage their constituencies in order to attract their approval and endorsement
(Dowling and Pfeffer, 1975; Lindblom, 1994; Merkl-Davies et al., 2011). For example, it
encourages management to expend more effort on and account to/for the more salient
groups who have the power to influence organizational outcomes (Gray et al., 1996;
Ullmann, 1985; Mitchell et al., 1997). As such, the model characterizes accountability as
a purposive means with which organizations seek constituent support to protect their
own self-interests.
At an operational level, both the positive and the ethical models of stakeholder
theory identify different mechanisms with which organizations can account to and for
their constituents. Public discourse, a much-studied mechanism in the for-profit
literature and the basis of this study, serves as an external tool. Here, through
communication, management conveys messages about organizational operations,
activities and performance to their stakeholders. Internal strategies include
adaptations of organizational visions, processes and ways of operating so as to
conform to societal norms.
How the two models of stakeholder theory deploy the different accountability
strategies differs markedly to reflect their different theoretical underpinnings. At one
extreme, the communication process utilized for strategic reasons seeks to influence and
AAAJ shape, that is manipulate, stakeholder perceptions and expectations so as to align
25,7 organizational practices with societal values. Legitimation strategies here include:
changing stakeholder perceptions about the organizations without necessarily altering
internal behavioral practices; amending stakeholder expectations so as to reduce the
pressures on organizations; and distraction tactics to divert attention away from
contentious issues (Gray et al., 1996). These external communication strategies, preferred
1144 to the more demanding internal adaptations, include techniques of impression
management which enable reporting entities to manage their image (Samkin and
Schneider, 2010). The for-profit literature recognizes multiple methods of impression
management including concealment and attribution (Courtis, 1998; Clatworthy and Jones,
2006; Brennan et al., 2009; Merkl-Davies et al., 2011). Concealment refers to situations
where management chooses to omit bad news items and draw attention to their strengths,
that is good news items, in an attempt to present the their organizations in a positive light.
Misspecification of organizational reality here is particularly heightened when

management chooses to downplay or withhold negative, material information while
disclosing less relevant, positive information. Attribution is when organizations take
credit for success and deny responsibility for failure by shifting the blame for negative
outcomes to circumstances beyond managements control (Merkl-Davies et al., 2011).
In contrast, the ethical model emphasizes genuine attempts to account both through
public discourse and internal adaptations. Here, with the overarching agenda
stemming from a moral responsibility, organizations account to their constituents even
if they choose to be entirely passive and ignore organizational efforts (Gray et al., 1991;
Gray et al., 1996). Moreover, stemming from an ethical background, the internal and
external accountability mechanisms operate alongside each other as part of an
integrated system. Genuine internal adaptations encourage and enable true
accountability through discourse and are at the same time shaped by reflections on
the accounts presented externally (Brown and Moore, 2001; Gordon and Fischer, 2009;
Global Reporting Initiative (GRI), 2010). Finally, public discourse is characterized by
transparency, a cornerstone of accountability such that disclosures are complete,
truthful and objective.
Overall stakeholder theory offers a useful framework within which to contextualize
accountability. The two models serve to define the role of accountability in
organizations and determine its play-out in practice. For NFPOs, it is more befitting to
use the ethical model of stakeholder theory to contextualize organizational
accountability. As social and political actors that exist to do good, NFPOs represent,
speak and act on behalf of marginalized communities who lack the power to influence
the wider constituents of society. They support noble causes such as fair trade, human
rights, equality and consideration for the environment and are also generally identified
by the virtues of honesty, integrity, justice, respect and fairness. The high moral
standards espoused by NFPOs apply not only to the work that they do and what they
want others to do but are also intrinsic to how they do it. If an organization is pushing
for justice, equity and democracy for its beneficiary groups, for example, then it is only
natural that these characteristics are reflected in their own systems and structures, not
only for these constituents but for wider stakeholders. Overall, the ethical foundations
that underpin the raison detre of NFPOs and their ways of operating should mirror the
underlying principles of the ethical model of stakeholder theory, and in turn
accountability should form an inherent feature of these organizations.
2.2 Not-for-profit accountability through public discourse Discharging
The focus of this paper, as mentioned earlier, is on accountability through public not-for-profit
discourse, and more specifically within this remit, disclosures in the statutory annual
report and the voluntary annual review. This sub-section presents a framework for accountability
NFP accountability through public discourse. Construction of this framework is the
centerpiece of the paper as it identifies what constitutes accountability (and what does
not) and therefore has direct implications for the validity of the study results (Marston 1145
and Shrives, 1991).
Prior research that has examined accountability through discourse has deployed
relatively narrow definitions of the concept. Connolly and Hyndman (2004) and Boyne
et al. (2002), for example, examining the NFP and public sectors respectively, equated it
to performance evaluation. Similarly, much of the for-profit literature and the GRI that
develops guidelines for organizational reporting have linked accountability with social
responsibility disclosures. The Charity Commission has also addressed the concept in a
piecemeal fashion.
Based on the conceptualization of NFP accountability presented previously, this
paper seeks to develop a more inclusive perspective of accountability. To do this,
consistent with prior research of this type (Coy and Dixon, 2004), the paper draws on
relevant theory (see the theoretical section) and borrows from prior empirical research
into both for-profit and NFP accountability and the disclosure practices advocated in
the NFP sector (for example, the UK Charity Commission). Necessarily, as attempts at
creating such frameworks require opinions on what to include and what to exclude,
there is an element of author judgment and subjectivity. This is particularly so with a
concept as elusive as accountability. Nevertheless, over time, as Gray et al. (1995b)
explain, correct versions emerge as a matter of negotiation between those working on
the subject area.
Four key themes of accountability for NFPOs to report on are identified. These are
strategic accountability, fiduciary accountability, financial accountability and
procedural accountability. While they each emphasize slightly different constituency
groups, collectively, they are concerned with the willingness to account and the
preservation of public trust as embedded in the ethical model of stakeholder theory (see
Table I).
Strategic accountability is associated with a NFPOs core purpose. Related
disclosures include: organizational intentions, that is, their vision and mission; actions,
that is, their activities and programs to fulfill the intentions; and results, which
measure the impact of their actions and the extent to which the intentions have been
achieved (Goodin, 2003; Keating and Frumkin, 2003). Decisions to respond to a specific
area of societal need, together with the activities pursued to address this, constitute
accountability in and of itself (Gray et al., 2006). For example, the decision of a mental
health charity to help those with learning disabilities is itself a form of accountability
since the organization has chosen to take responsibility for this specific group of
society. Similarly, the programs of a development charity to promote womens rights
are also forms of accountability as the organization has chosen to respond to and
account for this specific societal need. However, organizational intentions and pursuits
are not sufficient by themselves. What flows from them, that is, the benefits to
individual groups or society as a whole, are also important (Herzlinger, 1996). Stating
that a development agency is campaigning against the spread of AIDS (organizational
AAAJ
Strategic accountability Procedural accountability
25,7 Aims and objectives Ethical operational policies
Charitable activities, programs and projects Investment
Performance and achievements Trading
Program results/outcomes/impact Fundraising
Program efficiency Advocacy
1146 Program effectiveness Environmental
Staff
Volunteers
Downward stakeholders
Fiduciary accountability Financial accountability
Governance Financial position/stability
Organizational structure and decision making Income
Risk management Expenditure
Trustee recruitment policies Surplus/deficit levels

Financial policies Trading activities
Investment Performance of financial policies
Reserves Investment
Table I. Reserves
Not-for-profit Organizational efficiency
accountability: examples Program spend
of disclosure items Fundraising
vision and mission) is a useful account, as is discovering that it has a preventative

program for HIV (activities). An awareness of the impact that the program has had,
however, provides a more complete account, for example, by stating the reduction in
the number of new cases or changes in attitudes about the disease. Finally, Kendall and
Knapp (2000) emphasize the importance of efficiency and effectiveness as
accountability measures. NFPOs have a responsibility to spend their monies
efficiently, especially as they often rely on public funding. At the same time, they also
have a duty to spend the funds effectively, generating optimal outcome(s) for the
cause(s) towards which they are working. Overall, strategic accountability concerns
itself with a wide constituency and entails accounting to/for upward, downward and
lateral stakeholders. For downward and lateral constituents, however, it may be an
experience more felt than read in official documents.
While strategic accountability looks at the causes that organizations work towards,
financial accountability is concerned with their financial outlook and the main trends
and factors underlying their financial development. Management need to account for
their financial position to convey the operational continuity, stability and viability of
the organization and also the efficiency with which they operate (Tuckman and Chang,
1991; Global Reporting Initiative (GRI), 2010). While financial statements serve as a
tool with which to account, supplementary narrative information enables
organizations to present a more complete picture. For example, while showing a
financial deficit through the financial statements is important, actually explaining why
this is so is clearer and more complete. Like strategic accountability, financial
accountability concerns a wide constituency because it has implications for
organizational sustainability and stability.
Fiduciary accountability emphasizes probity and compliance, and at an operational Discharging
level, good governance and control (Brody, 2002). It is concerned with the not-for-profit
professionalism with which organizations are run and the safeguarding of their
funds, assets and future (Keating and Frumkin, 2003). Weidenbaum (2009) explains accountability
that at a time when corporate governance is undergoing very substantial reforms,
NFPOs should also place more emphasis on the mechanism to enhance accountability
to their members, supporters and society at large. This is especially so because 1147
organizational stakeholders and the general public simply put faith into these
sacrosanct organizations to do good. According to the Accountability Charter,
disclosures relating to fiduciary accountability include details of governance structures
and processes and policy details to confirm the safeguarding of organizational funds.
Finally, procedural accountability disclosures, a term coined in this paper, relate to
internal organizational operations and are designed to confirm that management
processes and procedures embody societal norms and beliefs. Procedural accountability
differs from fiduciary accountability in that while the latter is concerned with
organizational procedures in relation to governance and the security of organizational
assets, the former involves a social consciousness of how organizations are run.
Procedural accountability can also be distinguished from strategic accountability. While
the latter is associated with what organizations have achieved, procedural accountability
is concerned with how it has been achieved. Like corporate organizations that have a
social responsibility to different stakeholder groups, NFPOs also have a responsibility to
constituents beyond their beneficiaries and clients. For example, an organization relying
on societal support has a responsibility not only towards its beneficiaries but also
towards the general public from who it raises funds to ensure that the fundraising
practices do not exploit its generosity and trust. Similarly, an advocacy group
representing its beneficiaries in wider society has a responsibility not only to them but
also to those that it is lobbying against to ensure equity and fairness for all. As such,
procedural accountability addresses the diverse constituents of NFPOs more directly and
ensures that an organizations social profit is not only restricted to the cause that it works
towards but is distributed more widely and fairly (Bouckaert and Vandenhove, 1998).
Overall, the four accountability themes each address a specific form of
organizational responsibility. While they each place a distinct emphasis on different
organizational stakeholder groups, collectively they seek to address the constituents
equitably and ethically. Moreover, while the themes are presented independently, they
are arguably inter-related. Based on the classification scheme adopted by ODwyer and
Unerman (2007), fiduciary and financial accountability can be grouped together as
measures of functional accountability that are concerned principally with accounting
for, and the use of, resources. Similarly, strategic and procedural accountability can be
combined as constructs of social accountability that capture the social impact of an
organization. Equally, Brodys (2002) measure of managerial performance, which looks
at management effectiveness, captures financial and strategic accountability; fiduciary
accountability on the other hand is concerned with securing and managing charitable
funds to ensure organizational continuity.
Further, Edwards and Hulme (1996) and Ebrahim (2003a) explain that the multiple
accountability pressures on NFPOs can compete and conflict with one another such
that the four themes identified may also impinge on and frustrate each another. For
example, organizations may feel compromised pursuing an environmental policy at the
AAAJ expense of a program for its beneficiaries (procedural versus strategic accountability);
25,7 similarly, a temporary overuse of funds for the benefit of a beneficiary group may
compromise the immediate financial position of the organization (strategic versus
financial accountability). While the framework presented does not negate such
conflicts, the underlying ethical model of stakeholder theory encourages organizations
to make informed choices about the areas that they choose to work with and/or
1148 abandon in order to optimally balance the needs of their constituents.
There are additional caveats to consider when applying the framework. First, even
though each theme captures a different element of organizational responsibility,
individual items of disclosure may transcend more than one theme. For example,
representation of beneficiary groups on trustee boards captures procedural
accountability since constituent views are voiced and accounted for, while at the same
time it represents an act of governance which is a measure of fiduciary accountability.
Similarly, the efficiency with which organizations use their funds constitutes a feature of
financial accountability since the financial data highlights the position of the
organization, while equally the information serves as a measure of operational
performance which is captured through strategic accountability. Second, the discourse
model is developed principally from the perspective of large service organizations (such
as Oxfam and Save the Children). Here, upward stakeholders are largely detached from
the organizations and thus discourse serves as an important means with which
management can account to them. Such an organizational form, as Ebrahim (2003a)
indicates, is different from that of other NFPOs. Membership organizations, for example,
are principally run by, and for the benefit of, the members and thus more informal means
of accountability will prevail. Finally, unlike prior research (for example, Accounting
Standards Board (ASB), 2007; Goodin, 2003), this paper deliberately does not distinguish
between the relative importance of the different themes of accountability. While the
different themes may emphasize different stakeholders, the notion that within the ethical
model of stakeholder theory, organizations choose to account to constituents and treat
them equitably negates any differentiation. Nevertheless, organizational circumstances
may shape the reporting practices across the four themes. For example, in a passively
run (large) charitable trust that lacks an active trustee board with sophisticated
governance practices, fiduciary accountability may not be sufficiently material to report
on. Similarly, an organization involved in advocacy may choose not to report on the
developments of specific activities (strategic accountability) if such disclosures might
jeopardize the success of their campaigns.
3. Research intentions
The first part of this paper developed a framework for NFP accountability through
discourse. The themes introduced were based on stakeholder theory, which was deemed
to enable a more inclusive perspective of accountability as it recognizes multiple
constituencies. The objective of the second part of this paper is to analyze the patterns of,
and assess the motivations underlying, the accountability disclosures of a sample of
large UK charities, a prominent form of NFPOs. The premise is that to the extent that the
ethical model of stakeholder theory underlies organizational practice, discourse will span
all four accountability themes in response to a felt organizational responsibility.
Moreover, disclosures will be guided by attributes such as transparency, openness and
truthfulness that underlie the accountability concept. In contrast, if organizational
practice is shaped by the positive model of stakeholder theory, reporting patterns will be Discharging
managed to attract and maintain support from the more salient constituents. Discourse not-for-profit
will in turn be more reactive and selective as a response to constituent expectations and
demands. Moreover, in line with the notion of impression management, disclosures will accountability
be carefully crafted to attract relevant constituencies.
In the UK charity sector, within which this study is set (see the following), public
reporting is informed by the extant Statement of Recommended Practice (SORP) 1149
prepared by the Charity Commission (2005). Institutional theorists such as Meyer and
Rowan (1977) and DiMaggio and Powell (1983) have suggested that organizations often
incorporate practices and procedures institutionalized in society in good faith in order
to enhance their legitimacy. It is argued that doing so increases organizational
legitimacy and survival prospects, independent of the immediate value of the adopted
practices and procedures. The Charity Commissions reporting guidelines may be
regarded as one such source of legitimacy (Connolly et al., 2009), and may in turn
influence the sample organizations reporting practices.
Accordingly, this research analyzes the patterns of disclosures across the four
accountability themes developed and inquires into the presence of concealment, a
technique of impression management. In the latter case, both the enhancement of
organizational reality through emphasis on positive news items and the downplay of
negative news items are addressed. After describing the UK charity sector in the next
section, the research approach is explained.
4. The United Kingdom charity sector

While the UK NFP sector, as mentioned previously, comprises a variety of different
types of organizations, charities are by far the largest component (HM Treasury, 2007).
UK charities are engaged in a wide range of activities designed to promote social and
economic wellbeing. In 2008, it was estimated that sector income in England and Wales
was 48 billion, more than twice that of a decade earlier, and 6 per cent of the gross
domestic product (Little, 2009). By contracting for the provision of services and
grant-aiding other activities, the UK government (and in turn tax-payer) is the largest
single contributor to the sector. The public also engages in extensive voluntary giving
and is heavily involved in volunteering activities. In 2007/2008, 40 per cent of the
sectors income came from the general public with 56 per cent of UK adults regularly
giving to charities and almost three in four adults engaged in some form of
volunteering (Cabinet Office of the Third Sector, 2009).
In response to the sectors prominence and reliance on public support, the UK has a
strong legislative framework and a number of developments have been designed in
recent years to promote accountability. For example, in England and Wales[3], a new
Charities Act was introduced in 2006. This expanded the responsibilities of the Charity
Commission to include the promotion of public trust and confidence in the sector by
enhancing organizational accountability among members. The Charity Commission is
also responsible for the SORP, which is currently in its fourth iteration (Charity
Commission, 2005) and is designed to improve the quality of both narrative and
financial reporting. Additional developments to enhance sector accountability led by
the Charity Commission include the introduction of Summary Information Returns in
2005 and the development of the Guidestar UK web site to enable charities to enhance
accountability by disseminating relevant disclosures via the internet.
AAAJ In terms of self regulation, the National Council for Voluntary Organisations, an
25,7 umbrella body of voluntary organizations in England, developed a voluntary code of
conduct, the ImpACT (Improving Accountability, Clarity and Transparency) Coalition
in 2005. The objective was to encourage its members to enhance the sectors
transparency and accountability practices and, in turn, improve public confidence and
trust. In 2006, the Institute of Fundraising developed codes of fundraising practice and,
1150 in 2007, the Fundraising Standards Board was launched as a self-regulating scheme
based on the adoption of the Institutes codes. Globally, in 2006, the largest
international NGOs, several of which are also UK-registered charities, publicly
endorsed an Accountability Charter, the purpose of which is to enhance organizational
transparency and accountability; encourage communication with stakeholders;
improve organizational performance and effectiveness; and define shared principles,
policies and practices. Finally, the Global Reporting Initiative (GRI) (2010) developed
sustainability reporting guidelines for NGOs to encourage and aid members to

discharge financial and procedural accountability.
5. Research approach
The largest UK charities, as ranked by CharitiesDirect[4] on the basis of total annual
income, were selected for this research. They were considered to have the highest
national profile and also deemed to be the most influential in establishing trends for the
sector. The statutory annual report and voluntary annual review were chosen for
analysis. The annual report is a readily available document that has over time become
the principal means of reporting (Boyne and Law, 1991; Coy et al., 2001). As a formal
document, it also enjoys a degree of credibility not associated with other textually
mediated communication media. Moreover, its content in the UK is guided by
legislation and the SORP as an attempt to enhance sector accountability. The annual
review has the qualities of being principally a qualitative document which makes it a
suitable medium for discharging NFP accountability. In addition, as a voluntary
document, the review enables organizations to account to/for their constituents
willingly, in response to the notion of a felt responsibility discussed previously.
Annual reports and reviews for financial years ending on or after 31 March 2006,
being the first year for which the SORP (Charity Commission, 2005) applied, were
requested from the selected organizations by post; a reminder was sent to those
organizations that did not respond to the first request. Eighty-one of the 104
organizations responded to the requests to supply their annual report/review[5],
although six of these explicitly declined to participate, generating a usable response
rate of 72 per cent (see Tables II-IV). Of the 75 participants, 27 supplied annual reports
alone, eight provided their annual reviews alone and 40 sent both documents. The
Annual Annual
reports reviews Total
No. (%) No. (%) No. (%)
Panel A: Response rate

Overall response rate 73 70 54 52 81 78
Table II. Responded but declined to participate 6 6 6 6 6 6
Respondent charities Number of usable responses 67 64 48 46 75 72
Discharging
Fundraising/non-fundraisingb Nature of work Area of activity
not-for-profit
Panel B: Principal areas of activity a accountability
Fundraising 57 Undertakes specific activity 57 Social services and 15
(e.g. cancer research, animal relief
welfare) Health and medical 9
Religious 9 1151
International 9
activities
Operates on the fringe of the 10 Conservation and 8
public sector protection
Education, training 8
and research
Culture, sport and 7
recreation
Housing and 6
community affairs
Non-fundraising 18 Responds to crises (e.g. famine 8 Civil rights and law 4
relief) and order
75 75 75
a
Notes: Figures based on the 75 charities proving copies of either their annual report and/or annual
review. bCharities are classified as being either fundraising charities or non-fundraising. Fundraising
charities derive a significant proportion of their income from the general public and are, as such, what
the public would recognize as forming part of the charitable sector. Non-fundraising charities on the
other hand rely on other sources of income such as government contracts, private investment and Table III.
earned income Respondent charities
Panel C: Total income a ( millions) 24-100 100-200 200-300 300-400 400-500 500-550
Number of charities 45 11 5 3 2 1
Table IV.
Notes: aFigures based on the 67 charities proving copies of either their annual report Respondent charities
lower proportion of annual reviews in comparison to annual reports is not surprising

given their voluntary nature. All documents received were utilized in the study.
The participating organizations were involved in a variety of charitable activities
ranging from social services and international and religious activities to conservation
and culture. The sample accounted for over 9 billion (approximately 20 per cent) of
the sectors income in 2005/2006. While there was a significant size difference between
the smallest and largest organizations, they were all large (with an income of at least
20 million) and were therefore likely to respond to the increasing calls for
accountability in practice. An analysis of the income levels of the participants and
non-participants indicated no statistically significant differences (a Mann Whitney test
generated a p value of 13 per cent); although the narrative reporting practices of the
participants and non-participants may have varied. The reluctance of the latter group
to participate may indicate weaker accountability among this group and in turn,
over-statement of the results where high accountability levels were reported and
under-statement where low accountability levels were reported.
AAAJ Content analysis, which codifies qualitative information into previously determined
25,7 categories to understand the patterns of information presented (Beattie and Thomson,
2007), was employed. An important attribute of content analysis is the selection and
development of categories into which the content units can be classified as this
determines the extent to which the topic under examination is appropriately and
accurately captured by the coding instrument (Milne and Adler, 1999; Beattie and
1152 Thomson, 2007). Prior research (for example, Linsley and Shrives, 2006), where
possible, uses pre-existing coding instruments in an attempt to improve the validity
and reliability of the results. In the absence of a comprehensive NFP accountability tool
that captures all four accountability themes, however, a new coding instrument had to
be developed.
All narrative data in the annual reports and reviews was considered for the study.
Data were collected in two phases: the first captured disclosure details in relation to the
four accountability themes, while the second gathered details of the concealment
technique. Items for inclusion within the four accountability themes were identified
from the comprehensive definitions developed earlier, prior literature and
recommended practice. Definitions and decision rules were then developed for each
item[6]. Selection of the individual items for the specific themes was critical in that they
served to define what constituted the different the accountability themes identified
earlier, though inevitably subjective and judgemental. To facilitate the process, items
were drawn from prior research (for example, Connolly and Hyndman, 2004; Gray et al.,
1995a) and recommendations in practice (for example, the SORP). In addition, based on
the framework developed earlier, the themes were considered in their own right to
determine additional items within them. The biggest challenge lay with procedural
accountability, attributes of which had not featured in the practitioner or the academic
literature at the time of the data collection; the GRI supplement for NGOs that
emphasizes procedural accountability was published in 2010. Pertaining to how
organizations are run, disclosure items were centred around the different stakeholder
groups of NFPOs, including downward stakeholders, staff and volunteers, and policies
such as investment, trading, fundraising and the environment. Retrospectively, items
included in the study echo recommendations in the Global Reporting Initiative (GRI)
(2010) guidance.
For each theme, data were collected in relation to the extent of disclosure (that is, the
presence/absence of information) and the volume of disclosure (as measured by word
count). The presence/absence of information is an indicator of the breadth of
disclosure, while word count, that is the amount of space devoted to each theme,
reflects the importance placed by management on the respective themes (Neu et al.,
1998; Haniffa and Cooke, 2005). The definitions, decision rules and checklist were
finalized after several iterations, a process that entailed testing progressive versions of
the checklist against a small number of annual reports to ensure that the rules and
definitions were sufficiently accurate and objective to generate the same coding pattern
independently by the authors (Milne and Adler, 1999). Once the checklist was agreed, a
single, trained coder performed the content analysis[7]. Periodic checks were
undertaken by the authors to ensure that the rules and definitions were applied
consistently.
To analyze the data collected, the following two measures of accountability
disclosure were calculated for each accountability theme and in total: an equally
weighted accountability disclosure index (ADI); and an accountability disclosure Discharging
volume (ADV). With respect to the ADI, the equally weighted approach was selected to not-for-profit
reflect the absence of the relative importance of the themes, as explained earlier. It was
calculated as: accountability
X
ADIj Xij =nj
1153
where:
ADIj the accountability disclosure index for each accountability theme and in
total, for charity j;
nj the number of accountability items relevant for charity j; and
Xij 1 if the ith item for charity j is disclosed and 0 if it is not disclosed, so that
0 # ADIj # 1.
The ADVj was calculated as the total word count for each accountability theme and
was based on the word count of individual accountability items in each theme as
disclosed by charity j. ADI values for individual organizations ranged from zero to one.
A value of zero represented an organization that failed to provide any of the disclosure
items that were deemed relevant to the organization. A value of one denoted an
organization that provided all possible disclosures that were deemed relevant to its
circumstances. The purpose of using a ratio in which actual disclosures are divided by
total possible disclosures scores was to ensure that organizations were not penalized
for the non-disclosure of items that were deemed not applicable. For example, if an
organization was not engaged in trading activities, the denominator was adjusted to
reflect this. The applicability of individual items to each organization was determined
by an assessment of their activities and operations from their financial statements and
web sites[8].
To assess concealment, disclosures within each accountability theme were
classified as positive, negative or neutral and the word count measured. In accordance
with prior research in the for-profit sector (Deegan and Gordon, 1996; Brown and
Deegan, 1998; Clatworthy and Jones, 2003), disclosures were classified as:
.
positive if the information indicated positive steps towards achieving
organizational objectives[9];
.
negative if the information suggested a deviation/delay/distraction from the
pursuit of organizational objectives and/or ethical values[10]; or
.
neutral if they signaled neither positive information nor negative information
from an organizational perspective.
The final categorization was determined by the context in which the details appeared.
This approach meant that some disclosures, such as those relating to the area(s) of
need that the organizations sought to serve (for example, earthquakes or womens
rights), despite being negative in themselves, were classified as positive since they
presented the organizations activities favorably. Given the positive/negative
classification scheme adopted, consistent with prior for-profit research (Deegan and
Gordon, 1996; Brown and Deegan, 1998), neutral disclosures were uncommon.
AAAJ 6. Not-for-profit accountability in practice
25,7 This section analyzes the disclosure patterns of the sample organizations and assesses
the roles that the two models of stakeholder theory and the Charity Commissions
reporting guidelines may have played in shaping organizational practice.
The average length of the annual report for the sample participants was 51 pages,
although there was a large size variation. The reports, on average, comprised a
1154 marginally higher page count of narrative disclosures as compared with financial
information (see Table V), suggesting that the charities recognized the need for
qualitative information to discharge NFP accountability. This is in marked contrast to
that reported by Hyndman (1990) where financial accounting data dominated the
annual reports. The content of the narrative sections in the annual reports was
frequently structured under recurring titles such as the trustees report,
chairpersons report and summary of activities. In contrast, the voluntary annual
reviews were more variable in size, exclusively qualitative in content and lacked a
common structure. The annual reviews were also visually more attractive than the
reports. They tended to contain more presentational features such as pictures and were
more colorful, and were also often prepared on high quality, glossy paper.
Interestingly, the pictures in the documents also generally comprised positive images
of organizational constituents such as beneficiaries, donors and employees.
6.1 From the ethical to the positive model of stakeholder theory

Table VI presents the results of the disclosure patterns in the annual reports and
reviews. For each accountability theme, the table summarizes the incidence rate, that
is, the percentage of organizations that made at least one relevant disclosure (column
1); the ADI mean and standard deviation (columns 2 and 3); and statistics relating to
the ADV as measured by the word count, that is, the total words disclosed, means and
standard deviation and disclosed words as a percentage of the total disclosed words
(columns 4-7)[11]. A detailed breakdown of disclosure levels within each theme is
provided in the Appendix (see Table AI).
With respect to the annual reports, the high incidence rates recorded across the four
themes, ranging from 88 to 100 per cent, indicate that all four dimensions of
accountability were generally captured. The ADI and ADV scores, however, suggest a
somewhat different disclosure pattern. The ADI scores for strategic and fiduciary
accountability of 0.68 and 0.79 respectively, imply that the annual reports captured a
wide breadth of items related to these themes. In contrast, scores for financial and
procedural accountability of 0.49 and 0.32 respectively indicate that while management
generally provided some review of their financial position and the procedures followed,
disclosures were of an ad hoc nature and failed to capture, on average, more than half
Pages Narrative
Total Financial statements information
Reports Reviews Reports Reviews Reports Reviews
Table V. Minimum 20 4 5 8 4
Summary information: Maximum 140 124 66 87 124
annual reports and Mean 51 35 25 26 35
annual reviews Standard deviation 21 25 10 15 25
Discharging
Index Words
Themes Incidence ratea Mean Std dev Total Mean Std dev Per cent of total not-for-profit
Panel A: Annual report n 67
accountability
Strategic 100 0.68 0.25 155,038 2,314 2,382 47
Fiduciary 99 0.79 0.26 99,330 1,505 628 30
Procedural 88 0.32 0.20 18,409 312 324 6 1155
Financial 97 0.49 0.22 54,860 844 465 17
Panel B: Annual review n 48
Strategic 100 0.48 0.24 184,334 3,922 2,734 97
Fiduciary 9 0.03 0.09 1,504 376 308 1 Table VI.
Procedural 11 0.03 0.08 1,480 296 161 1 Descriptive statistics for
Financial 33 0.09 016 3,375 225 131 2 the four accountability
themes in the annual
Notes: aThis is presented as a percentage of the total participating sample who presented at least one
reports and annual

disclosure reviews
of the financial and procedural attributes relevant to the organizations. The ADV also
reveals a similar pattern: strategic and fiduciary accountability attracted relatively
high word counts (percentage representations of the total word count of 47 and 30 per
cent respectively), while financial and procedural accountability disclosures made up
relatively smaller volumes (percentage representations of the total word count of 17
and 6 per cent respectively). Overall, annual reports served as an important
accountability medium through which organizations addressed all four accountability
themes. However, management appeared to emphasize and attribute more importance
to strategic and fiduciary accountability and paid relatively little attention to financial
and procedural accountability.
An analysis of the content of the annual reviews suggests that organizations
employed these voluntary documents primarily to discharge strategic accountability to
their stakeholders; the incidence rate was 100 per cent and the percentage
representation of total word count was 97 per cent. Indeed, several organizations
expressed in the reviews that the purpose of the documents was to disseminate
information about progress in their respective areas of work:
This annual review and impact report is about transformation on three levels: the 100,000
individuals weve directly supported [. . .] the positive impact weve had on the communities
weve worked in and with [. . .]; and the social policy weve influenced by giving our service
users a voice and campaigning on issues that matter to them [. . .] (Social Services Charity).
This annual review illustrates some of the many ways in which the work we support or carry
out ourselves is making a difference. This years stories of the discovery and application of
new knowledge illustrate how outstanding researchers are gaining insight into biological
processes [. . .] (Medical Charity).
As apparent from Table VI, one third of the organizations also used the annual reviews
to discharge financial accountability. However, the low percentage representation of
total word count of only 2 per cent and the low ADI score of 0.09 indicate that the
related disclosures appeared infrequently. Finally, organizations did not generally use
annual reviews as vehicles with which to discharge fiduciary and procedural
accountability.
AAAJ Overall, strategic accountability featured almost exclusively in the annual reviews,
25,7 while strategic and fiduciary accountability attracted more managerial attention and
importance than procedural and financial accountability in the annual reports. The
diversity across the four accountability themes, particularly in relation to the ADI
scores, contradicts the notion of accountability as a felt responsibility. Instead, the lack
of uniformity appears to support the positive model whereby disclosures may have
1156 been purposive in nature and a response to external pressures from salient stakeholder
groups and/or the Charity Commission through its reporting guidance. These latter
two possibilities are investigated in the following by mapping the results of the study
to the published expectations, developments and news in the public arena recorded and
the reporting guidelines of the Charity Commission.
Tracing the developments in the public arena in relation to strategic accountability,
Hyndman (1990) reported that charity contributors rated information about the causes
that charities worked towards, the charitable activities pursued and organizational
achievements as the most important and were largely unconcerned about the financial
accounting data provided. Subsequent studies by Khumawala and Gordon (1997) and
Parsons (2003) verified this by reporting that information about charity activities was
perceived to be the most important and played a significant role in informing giving
decisions. More recently, surveys have reported that not knowing how charities spent
their money was consistently the most common reason for the decline in public trust in
charities (for example, Opinion Leader Research, 2005; Charity Commission, 2008). The
results of this study reveal a significant increase in strategic accountability disclosure
activity (see the Appendix) since Hyndman (1990), suggesting a sector-wide response
to donor and public expectations and pressures.
Fiduciary accountability has also attracted considerable attention from oversight
bodies, funders and the public since the late 1990s when cases of charity malpractice
related to poor governance were heavily publicized, resulting in a fall in public
confidence (Gordon and Khumawala, 1999). A formal analysis by Gibelman and Gelman
(2001, 2004) indicated that of the 63 incidences of reported malpractice, 95 per cent were
related to incidents of fraud, embezzlement and mismanagement of charitable funds.
Unsurprisingly, this resulted in greater scrutiny by oversight bodies such as the Charity
Commission (Charity Commission, 2000; Beattie et al., 2001; Katz, 2005) and led to
charities being encouraged to instigate appropriate disclosure practices, as the results
indicate. Calls for improved accountability in the sector stemming from major corporate
scandals (Weidenbaum, 2009) may have also contributed to the results observed.
In contrast to the emphasis on strategic and fiduciary accountability by the external
stakeholder community, financial and procedural accountability have attracted little
attention. The lack of emphasis on financial accountability may in part be attributed to
the relative ease with which the sectors funding has improved. Since 1999, for
example, the sector has more than doubled its income from 23.74 billion to 48.5
billion. Further, larger charities, that is, those with an income of over 10 million, have
received a higher proportion of this income, rising from 43 to 53 per cent (Charity
Commission, 2009). In addition, it appears that there is a limited appetite for financial
accountability disclosures from the different constituencies. Connolly et al. (2009)
report that stakeholders are generally disinterested in the grey financial statements
central to financial accountability and instead support story telling of organizational
activities, i.e. strategic accountability.
In relation to procedural accountability, there have been few publicized cases Discharging
relating to procedural accountability to weaken the legitimacy of NFPOs and thereby not-for-profit
warrant communication with organizational stakeholders. The Gibelman and Gelman
studies (2001, 2004) reported that only three of the 63 of the cases of charity accountability
wrongdoings related to organizational operation two incidents of dubious
fundraising practices and one of an assault by a senior staff member. In the absence
of any significant negative publicity, charities, it appears, have seen little need to 1157
disclose their operational practices and have simply relied on their sacrosanct nature as
indicators of ethical and responsible organizational operations. Kreander et al. (2009)
who examined the ethical investment practices of the largest charities in the UK
reported that while 63 per cent of the organizations surveyed had a written or an
informal ethical policy in place, most failed to disclose its presence in their annual
reports. At the same time, however, the study highlights that despite their moral
grounding one third of the charities sampled simply lacked an ethical infrastructure
about which to report. In other words, organizations internal practices fell short of the
expectations of the ethical model of stakeholder theory, and this was in turn reflected in
their reporting practices.
Overall, the organizational practices reported in this study map the developments in
the public arena, whereby strategic and fiduciary accountability, in comparison to
financial and procedural accountability, have received considerable attention from the
donor and funder communities and the public. The selective disclosure patterns fail to
support the ethical model of stakeholder theory in that discourse appears to have been
crafted to the demands and concerns of relevant constituents.
Intentions to comply with Charity Commission guidelines are now considered. The
relatively high ADI and ADV scores for strategic and fiduciary accountability suggest a
high compliance level with Charity Commission guidance since these disclosures form a
major part of the narrative guidelines purported in the SORP (Charity Commission,
2005). In addition, the low ADI score for procedural accountability also mirrors the
Charity Commissions recommendations since the related disclosures do not feature in
the 2005 SORP. It is indeed likely that the incremental changes to the different versions
of the SORP since its inception are the Charity Commissions response to the
developments in the market place, as explained previously. The one area where the
results suggest that organizations failed to comply with the Charity Commissions
regulation relates to financial accountability. The relatively low ADI score and ADV for
financial accountability fail to match the recommendations of the related disclosures in
the 2005 SORP. The best incidence rates for financial accountability disclosures stood at
69 per cent for items associated with income sources and surplus and deficit levels, and
the rate of 32 per cent in relation to fundraising efficiency indicated that more than two
thirds of the organizations failed to review their fundraising efficiency (see the
Appendix). Overall, the results provide partial support for the compliance motivation as
a basis with which to achieve legitimacy.
6.2 From the ethical to the positive model of stakeholder theory: further evidence
Table VII reports the results in relation to concealment practices in the annual reports
and reviews. For each of the four accountability themes, the table summarizes the
incidence rate, that is, the percentage of organizations reporting at least one negative
new item for each theme (column 1); and the mean word count for positive news
AAAJ
Incidence ratea Word count
25,7 Making at least one Ratio of ve mean
Themes disclosure ve mean 2 ve mean to 2ve meanb
Panel A: Annual report n 67

Strategic 24 2,274 * 40 * 57
1158 Fiduciary 3 944 * 1* 944
Procedural 3 270 * 4* 68
Financial 45 697 * 48 * 15
Total 60 4,187 * 94 * 45
Panel B: Annual review n 48
Strategic 6 2,311 * 3* 770
Fiduciary 0 1,505 * 0* N/A
Procedural 0 312 * 0* N/A
Financial 10 841 * 3* 280

Total 17 4,971 * 6* 828
Table VII.
Descriptive statistics for Notes: *Indicates that the mean word count for positive and negative information, and the ratio of
the concealment negative to positive information for the two independent samples were statistically significant at the 1
technique presented in per cent level. aThis is presented as a percentage of the total participating sample who presented at
the annual reports and least one disclosure. bN/A, not applicable indicates that it was not possible to calculate the ratios of
annual reviews positive means to negative means for these categories
information, negative news information and the overall ratio of positive mean words to
negative mean words (columns 2, 3 and 4).
The results in Panel A reveal that the total incidence rate of negative news items in
the annual reports was 60 per cent. Hence a significant proportion of organizations
presented exclusively positive new items in their annual reports. In addition, the mean
volume of negative disclosures was statistically significantly lower than that of
positive disclosures. Indeed, with the exception of financial accountability, the ratios of
positive to negative information were much larger than those recorded in the corporate
sector. For example, Clatworthy and Jones (2003), analyzing chairmans statements,
reported a ratio of 6 while Brown and Deegan (1998), examining environmental
disclosures, reported a ratio of 30. Overall, these results, especially when compared to
those of the commercial sector, indicate prevalence of the concealment strategy in the
reporting practices of the sample population.
It is also notable that almost twice as many organizations (45 per cent) presented
negative financial accountability information in their annual reports as compared to
strategic accountability information (24 per cent) and this ratio was much higher in
relation to fiduciary and procedural accountability. The prominence of the negative
financial accountability disclosures may have been a result of the associated negative
information already being presented to the stakeholder communities through the
financial statements. In other words, managers may have been more inclined to
disclose negative financial news items because these were already apparent to the
stakeholder communities, but disinclined to disclose other negative news items about
which stakeholders were broadly unaware. If this is the case, NFPOs are strategic in
their reporting practices even when they present negative information. First, consistent
with Merkl-Davies et al. (2011), they seek to create an impression that is consistent with
the overall reading of the annual report. And second, organizations possibly deploy the
negative financial disclosures to engender trust and confidence in their audiences Discharging
(Christensen and Skrbk, 2007) by creating an impression that they are indeed
transparent in their reporting practices.
not-for-profit
Generally the results pertaining to the use of concealment further negate the ethical accountability
model of stakeholder theory. Discourse, in this case, appeared to be crafted to cultivate
a positive image of the organization to appeal to the external stakeholders. In the UK,
auditors are required to assess whether the narrative information in annual reports 1159
contradicts the evidence uncovered in the course of the audit or the information
presented in the audited financial statements. However, there is little in place to ensure
the absence of selectivity in the qualitative information presented and, in turn, a
transparent and open reporting process. Further, given the dissociation between
audited financial information and narrative accountability disclosures for NFPOs,
under the current auditing practice, there is greater scope for management to
manipulate the information conveyed.
The impression management results in the annual reviews were even more
pronounced than those in the annual report. Specifically, the results in Table VII
suggest that only 6 and 10 per cent of the organizations disclosed negative information
relating to strategic accountability and financial accountability respectively, the two
themes prevalent in the reviews. The content in over 80 per cent of the annual reviews
was exclusively positive. Together with conveying organizational enthusiasm,
commitment and passion for the organizations core activities, annual reviews were
intended to inform organizational stakeholders (often donors) of what their funding
had helped to achieve in other words organizations explicitly and consciously sought
to present positive information for the benefit of their givers:
. . . the kindness and commitment of the people who support our work through donations [. . .]
is essential for our work to continue and we hope the stories of success [emphasis added] in
this review will help to show this generosity has been put to good use [. . .] (International
Development Charity).
However, these documents, as the impression management results suggest, did not
discharge accountability but rather served as publicity material. Consistent with
Connolly et al. (2009), the content was intended to create a positive image by recounting
stories of success (the previous quotation) and organizational achievements:
This annual review gives us the opportunity to show you some of our achievements
[emphasis added] from the past year (Medical Charity).
Positive images in the pictures mentioned earlier complemented the positive genre in
the narratives. More generally, the visual attractiveness of the reviews also served to
contribute to the publicity type nature of these documents.
7. Conclusions and implications

NFPOs exist to make the world a better place. They support noble causes such as
fighting poverty, human rights and consideration for the environment. As
organizations grounded intrinsically in ethical principles, NFPOs have great
responsibilities to their constituents to act responsibly and account to and for them.
This paper develops a framework of NFP accountability through public discourse and
examines the accountability practices of a sample of large UK charities through their
annual reports and reviews. The framework is contextualized in the ethical model of
AAAJ stakeholder theory which befits the ethical basis of NFPOs. Narrative reporting is a
25,7 complex and multi-dimensional process, with the documents not only serving as a
vehicle for transmitting information, but also to provide an account of organizational
outcomes as a result of managerial actions and decisions, and a means of forging
relationships with stakeholders (Merkl-Davies et al., 2011).
The results of the study suggest that the annual report served as the formal
1160 accountability document while the voluntary annual review principally performed a
publicity role. In addition, disclosures in both documents were not led by the ethical
model of stakeholder theory but appeared to be motivated by the positive model of
stakeholder theory. Management sought to respond to market expectations and, to some
degree, the recommendations of the Charity Commission, rather than account proactively
and disclosures were also cultivated to present a positive image. The disclosure practices
observed are similar to those of corporate and public sector organizations where public
discourse has also been guided by issues of interest, importance and concern to external
stakeholder communities and attempts to legitimize organizations actions and strategies
(Gray et al., 1995a; Van der Laan Smith et al., 2005; Christensen and Skrbk, 2007;
Samkin and Schneider, 2010), and the need to create a positive organizational image (Neu
et al., 1998; Brown and Deegan, 1998; Clatworthy and Jones, 2003; Merkl-Davies et al.,
2011). In place of constructing accounts of organizational activities and outcomes, annual
reports (and reviews) are used to shape outsiders perceptions of the organizations. This
practice, however, detracts from a true, felt notion of accountability. The sample
organizations (accountability) actions here are as such inconsistent with the raison detre
of NFPOs and the values that they espouse.
These results support the financial accounting practices reported in Tinkelman
(2009) whereby a cancer research organization sought to alter its accounting practice to
improve its efficiency ratio and in turn its funding prospects. The results are
nevertheless paradoxical when considered against the role that charities have played
as agents of change to influence the corporate social and environmental accountability
agenda. As watchdogs of the activities of these sectors, and as advocates for the less
privileged, some NFPOs have lobbied to make corporate social reporting a mandatory,
audited and transparent process. It is possible that despite their attempts to make such
organizations more ethical and equitable in their practices, consistent with Davison
(2007), NFPOs have themselves adopted pragmatic business practices in response to
the corporate-like pressures that they are increasingly exposed to.
An improvement in the external accountability practices of the charity sector (and
the NFP sector more generally) requires a cultural shift in public discourse whereby
selectivity in the presentation of information both in terms of the accountability themes
and concealment is replaced with proactive and holistic accounting of organizational
practice. This means change in both the external public discourse process and the
internal systems of organizations to ensure that genuine accountability pervades all
organizational processes and procedures. In addition, to maintain public support, the
move from information selectivity and manipulation to openness and transparency
necessitates a re-acclimatization of external stakeholder communities to ensure that
adverse news items are not automatically misconstrued as organizational failure.
As an oversight agency, the approach taken by the Charity Commission to promote
accountability through the annual reporting process, it appears, is still based on the
positive model of stakeholder theory rather than on discharging true accountability. Its
focus on fiduciary and strategic accountability disclosures, for example, suggests an Discharging
attempt to respond to the market demands for information; and similarly, its lack of not-for-profit
emphasis on procedural accountability detracts from true notions of accountability. In
addition, despite its role in maintaining public trust and confidence, the Charity accountability
Commission has, hitherto, made little reference to transparency in its reporting
guidelines. One possible reason for this approach may be its reliance on the ASBs
financial reporting framework (Accounting Standards Board, 2007), which appears to 1161
be driven by financial accounting information. For example, in contrast to the ethical
model of stakeholder theory, the framework identifies donors and funders, in their
capacity as investors, as the important recipients of annual reports, and regards
disclosed information as an aid for their rational and economic decision-making.
Moreover, while the framework supports the role of narrative information in
discharging accountability, it fails to apply criteria such as reliability and truthfulness
that are emphasized for financial accounting information to the qualitative disclosures
and consequently relegates the importance of such discourse. To improve the
accountability practices of the sector, the Charity Commission may benefit from
reconsidering accountability through a new lens that specifically links the concept to
the virtuous and ethical attributes of its members. In addition, the Charity Commission
in consultation with umbrella bodies can support the shift in the discourse culture
through a broad dialogue with stakeholder communities to ensure that they embrace
an open and transparent reporting process and continue to support the sector.
Recent self-regulatory initiatives to further the accountability agenda, it appears,
have made progress to redress the imbalance in reporting practices observed in this
paper and in turn enable a truer accountability. The Accountability Charter and the
GRI guidelines have, for example, recognized the role of procedural and financial
accountability to encourage holistic accountability, and coupled with the Impact
Coalition, have also emphasized the notions of honesty and transparency in reporting.
Limitations of a study such as this should be acknowledged when interpreting the
results and implications for future practice. Despite the measures taken to avoid it,
given the elusive nature of accountability, subjectivity is an inherent feature of this
study. Moreover, the study did not actively distinguish between material and less
material disclosures; such a distinction would have further served to assess the
consistency of practice with the ethical model of stakeholder theory. Finally, the
self-selective study sample may have also biased the results reported, understating the
low levels of accountability and impression management techniques and over-stating
high levels of accountability.
New research to further develop the NFP accountability agenda needs to examine
the shifts in accountability over time and assess the impact of the recent self-regulatory
developments intended to enhance sector practice. Moreover, to further assess the
extent to which practices are shaped by the ethical model of stakeholder theory,
research can compare practices of fundraising organizations with non-fundraising
organizations. Based on the results of this study, disclosures of fundraising
organizations are more likely to be stakeholder (donor/funder)-led; non-fundraising
charities in contrast do not face such pressures[12]. Academically, future research may
also examine the expressive powers of the visual, which appeared to play a critical role
to complement the narrative information especially in the annual reviews (Campbell
et al., 2009; Davison, 2011).
AAAJ Notes
25,7 1. See International Non-Governmental Organizations Accountability Charter at: www.
ingoaccountabilitycharter.org/
2. Consistent with Gray et al. (1995a), we believe that the positive model of stakeholder theory
and legitimacy theory (organizational legitimacy) are two overlapping theories with a
similar orientation rather than two competing theories. Traditional legitimacy theory links
1162 organizations to their environment by reference to society at large; this is in contrast to
stakeholder theory which distinguishes between different groups of stakeholders within
society to take consideration of their differing expectations and perceptions. Proponents of
legitimacy theory (for example, Lindblom, 1994) are, however, shifting focus away from
society as a whole to expectations of particular groups within society. It is also important to
note that stakeholder theory is not the only strategic manner with which organizations may
seek legitimacy from their stakeholders; other theories such as institutional theory may also
play a valid role (Chen and Roberts, 2010).
3. While similar arrangements are in place in Scotland and Northern Ireland, the environment
is more established in England and Wales.
4. See www.charitiesdirect.com/index.asp
5. As some charities were ranked jointly, there were 104 charities in the Top 100 list. It was
not possible to obtain the remaining annual reports from either the Charity Commissions or
charities own web sites.
6. A copy of the checklist is available from the authors on request.
7. The coder was first familiarized with the research objectives and the relevant accountability
literature and then taught about the data collection approach used and the definitions and
decision rules to be applied. The definitions and decision rules were jointly applied by the
coder and one of the two researchers for a small sample to ensure a sound understanding for
the former party before he collected data for the entire sample.
8. While materiality is a significant consideration for disclosing organizations (Forstater et al.,
2006; Campbell and Slack, 2008) and influences disclosing patterns (Lo, 2010), it was difficult
to judge the materiality of the different items examined from the organizations perspectives,
and thus so long as they applied to the organization (even if insignificantly), they were
included in the study.
9. Examples of positive disclosures are: XXX is striving to promote equality and diversity in all
areas of employment including recruitment and selection, training and development and
promotion. XXX has a positive attitude towards employment of all under-represented
groups and is implementing a workforce diversity strategy to support its commitment; and
our responses to this year of emergencies have been swift and wide ranging. In XXX, we
built up an emergency program from scratch, treating more than 30,000 malnourished
children. Following the earthquake in India and Pakistan, we worked with other member
organizations [. . .] to provide emergency relief to hundreds of thousands of people.
10. Examples of negative disclosures are: we have continued to invest in fundraising. But we
have not grown our voluntary income from donations (the money people give us) as much as
we would have wished; and the Trustees do not consider that adopting an ethical investment
policy would be consistent with their decision to use passive management.
11. Relying on incidence rates alone (column 1) may not present a complete picture of
organizational practices because the approach treats organizations that disclose one or more
items in each theme as equal. In contrast, the ADI scores consider the variety of disclosures
presented by organizations (without penalizing those for who specific disclosures may not
apply) and the ADV values assess the volume of disclosures by word count and capture the Discharging
importance applied to each theme by management.
not-for-profit
12. The authors would like to thank one of the referees for drawing attention to this. This study
did not examine whether there were any differences in the practices of fundraising and accountability
non-fundraising charities because, given the dominance of fundraising charities within the
sample (see Tables II, III and IV), it was not possible to match these two groups by either size
or area of activity to enable reasonable conclusions to be drawn. 1163
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About the authors

Alpa Dhanani is Senior Lecturer in Accounting at Cardiff University, where she also completed
her PhD studies. Alpas research interests lie in the field of not-for-profit accountability, and
annual reporting. Alpa Dhanani is the corresponding author and can be contacted at:
dhananiav@cardiff.ac.uk
Ciaran Connolly is Senior Lecturer in Accounting at Queens University, Belfast. A fellow of
the Institute of Chartered Accountants in Ireland, he holds a DPhil from the University of Ulster
and an MBA from Queens University, Belfast. Ciarans main area of research is in the field of
public services, particularly the financial and performance measurement aspects of the
voluntary/charitable sector.
Annual reports Annual reviews

Words Words
a
Incidence Mean SD Min Max Incidence Mean SD Min Max
Appendix
Strategic
Charitable intentions 93 374 284 30 1,560 19 248 197 65 675
Programs/activities 63 1,276 1,842 90 10,070 94 3,366 3,035 245 16,020
Achievements/performance 48 2,440 1,945 50 7250 32 2,120 1,389 265 4,710
Impact/results/outcomes 48 2,280 1,865 50 6,480 32 2,103 1,361 390 4,710
Efficiencya 2 265 265 265
Effectiveness 6 1,283 772 740 2,420
Fiduciary
Governance and decision making 99 600 367 150 1,780 8 313 321 50 775
Risk management 96 283 196 35 850 2 165 165 165
Trustee policy 81 139 99 20 450 2 90 90 90
Reserves policy 67 236 182 30 860
Investment policy 56 184 101 50 420
Procedural
Ethical policies
Investment 32 152 106 30 310
Trading 2 300 300 300 300
Fundraising 2 55 55 55 55
Downward stakeholders 40 220 337 20 720
Staff 64 220 239 10 1,250 8 159 81 80 265
Volunteers 70 89 79 10 260 4 170 106 95 245
Environmental 8 79 43 45 150 2 150 150 150
Financial managerial
Income review 69 277 214 40 850 17 104 59 40 180
Expenditure review 51 154 97 15 420 17 88 54 30 190
Surplus/deficit levels 69 226 186 10 800 25 252 214 60 695
Trading activities 40 169 147 30 500 2 250 250 250
Financial policies
Reserves 36 245 123 50 530 6 135 26 105 150
Investment 198 140 50 640 6 98 83 15 180
Efficiency b
Program related 28 296 263 40 1,050 4 178 18 165 190
Fundraising activity 32 261 183 20 620 15 196 125 70 375
Notes: aThis is presented as a percentage of the total participating sample who presented at least one disclosure. bEfficiency as strategic accountability was referred to as
the efficiency of individual activities/programs that organizations were engaged in and efficiency as a form of financial accountability referred to overall organizational
efficiency as determinable through the financial statements
accountability
not-for-profit
the detailed
Discharging
annual reviews
the annual reports and
accountability items in
Descriptive statistics for
1169
Table AI.
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Discharging not-for-profit accountability: UK charities and public discourse

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*Related content and download information correct at time of download.

Misspecification of organizational reality here is particularly heightened when

Trustee recruitment policies Surplus/deficit levels

vision and mission) is a useful account, as is discovering that it has a preventative

4. The United Kingdom charity sector

sustainability reporting guidelines for NGOs to encourage and aid members to

Panel A: Response rate

lower proportion of annual reviews in comparison to annual reports is not surprising

6.1 From the ethical to the positive model of stakeholder theory

reports and annual

Panel A: Annual report n 67

Financial 10 841 * 3* 280

7. Conclusions and implications

Christensen, M. and Skrbk, P. (2007), Framing and overflowing of public sector

About the authors

Annual reports Annual reviews

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